Russia, buried by US Shale

Chron Energy reports:

The natural gas boom in the U.S. has weakened Russia’s influence on European energy supplies and could keep Iran’s influence in check for years to come, according to a new study from the Baker Institute for Public Policy at Rice University.

The study, “Shale Gas and U.S. National Security,” says the surge of drilling in shale formations will have an impact on global supply for years to come and limit the need for the U.S. to import liquefied natural gas, or LNG, for at least 20 to 30 years.

That means more LNG shipments from the Middle East will be available for Europe, which has been beholden to Russia for a large portion of its gas, supplied by pipelines.

EDITORIAL: Humiliation in Bulgaria

EDITORIAL

Humiliation in Bulgaria

Last week little Bulgaria, whose citizens live far longer than “mighty” Russians on average, poked a finger right in Russia’s eye.  It told the Russians it was no longer interested in hosting a pipeline to Europe, specifically Greece.

There were two truly devastating implications from this action.

While Putin floats on Oil, his Countrymen Drown

The indispensable Paul Goble reports:

Moscow’s excessive reliance on profits from the export of oil and gas — the centerpiece of Vladimir Putin’s policies – has been contributing to a significant decline in the standard of living of most Russians beyond the capital’s ring road even as it has boosted the country’s GDP, according to a UN report on “Energy and Stable Development.”

As a result, Nataliya Zubarevich, a geographer at Moscow State University who helped prepare the report says, “there is oil and gas [in Russia] but no happiness,” at least outside Moscow, the oil and gas producing regions of Khanty-Mansiisk and Yamalo-Nenets, and the processing center in Tyumen. Because the Russian government has “incorrectly” relied on oil and gas profits alone to show economic growth, she continues, there has been a decline in the well-being of Russian citizens, not only in terms of income but also in health, education and other social services.

Indeed, the report points out, in order to support oil and gas exports, Russia has to spend nearly five percent of its GDP to support the oil and gas infrastructure, an amount that severely limits Moscow’s ability to invest in the modernization of the country and that will largely preclude it as the cost of drilling increases and Russia’s production of oil and gas declines. In an interview with Svobodnaya Pressa, Zubarevich added that the sale of oil and gas abroad had helped Russia but that the way in which these profits were used now constitutes “a very serious break on development,” one that she suggests will only become worse if Moscow doesn’t change course.

EDITORIAL: Russia, Running Dry

EDITORIAL

Russia, Running Dry

According to a stunning, nearly 200-page analytical report released last week by the United Nations (see page 24):

The threat of depletion of Russia’s proven and accessible oil resources in 20-30 years time has become a real threat, mainly because of inadequate exploration in the past decade and more difficult extraction conditions, which require work in remote regions with harsh climate. Even during the recent boom years (2002–2008) the depletion date came nearer (from 26.3 to 21.9 years) (Figure 1.8). Reserve replacement is progressing very slowly and the crisis has clearly worsened the situation.

The situation with natural gas reserves is better, mainly due to huge deposits, which are sufficient for 70 years of production. But the expected depletion date for natural gas has moved closer by 9.4 years in the last decade, canceling out reserve replacement.

You read that right:  Within this century, Russia is likely to totally exhaust its reserves of both gas and oil.  Crude oil, by far more important to Russia in terms of generating essential foreign exchange, may be entirely gone as soon as 2030. 

Let’s repeat that:  Within two decades, three at the most, there will be no more crude oil for Russia to sell abroad unless new sources are found or the current rate of is drastically curtailed.  Within one generation, Russia’s gas resources may also disappear (if the last decade’s trend continues in the next, Russia’s gas will likely exhaust in 2070).  Russia’s hard currency reserves, before this century is out, will rapidly dwindle to nothing, the value of the ruble will plummet, the stock market will collapse and the price of imported goods will soar far beyond the means of ordinary people, an apocalypse in a country which produces virtually no worthy consumer products of its own.

The reason is simple:  Russia is guzzling oil and gas in a pathological manner because its industry is profligately wasteful and the climate demands extreme consumption which the Kremlin must vastly subsidize since it rules an impoverished population.  And Russia is selling oil abroad at a frenzied rate in order to bolster its flagging domestic economy and to fund the savage cold-war aggression of the KGB Kremlin.  By contrast, Russia is failing to invest energy proceeds in development of new energy assets, squandering them instead on cold-war politics.  This wicked one-two punch to the nation’s economic solar plexus will soon bring the national economy to its knees.

EDITORIAL: Ukraine suckers Russia, but Good!

EDITORIAL

Ukraine suckers Russia, but Good!

Last week, Ukraine’s new president Victor Yanukovich sold a piece of his country to Putin’s Russia in exchange for wildly reduced prices on natural gas.

Specifically, Yanukovich renewed Russia’s lease on its naval base on the Black Sea at Sevastopol from 2017 to 2042.  For Yanukovich, it was the deal of the century. For Russian “president” Dima Medvedev, it was yet another amazing sucker move.

The irony in light of our lead editorial in this issue is palpable:  Russia is running out of gas rapidly, yet it is going to send a flow of cheap energy to Ukraine indefinitely in order to secure a naval base which offers Russia absolutely no strategic value, since the Russian “navy” is a mere figment of the Kremlin’s imagination, in reality nothing more than rusty, creaking bucket of bolts.

Gazprom and Putin, on their Knees

Streetwise Professor reports:

A recent FT had a fascinating article on Gazprom.   Many of the company’s challenges are well known: declining production, reduced demand in Europe, increased world supplies, pressure on its traditional pricing mechanism.  What makes the FT article particularly interesting is its extended discussion of the internal domestic challenges to the company’s dominance.  Challenges led by your fave and mine, Igor Sechin.  (If, as the one State Department intelligence guy told me, Lavrov is fascinating in the same way a tarantula is fascinating, in what way is Sechin fascinating?  One shudders at the thought.)

EDITORIAL: The Putin Economy in Shambles

EDITORIAL

The Putin Economy in Shambles

We learned last week that merger and acquisition activity in Russia fell a shocking 62% last year.  Activity in the areas of consumer goods and retail, financial services and metals and mining was even worse, down a devastating 80%.  Investors spurned Russian risk with a furious vengeance, and for this same reason the Russian stock market’s value remains utterly puny compared to the theoretical value of the assets it represents.

The world, you see Mr. Putin, is getting wise to you.

Dead-End Russia

Fraser Cameron of the EU Russia Centre, writing in the New York Times:

President Dmitri Medvedev has publicly stated that Russia needs to change course if it does not want to end up as a third-world country. Igor Shuvalov, the first deputy prime minister, recently told investors that although Russia had suffered its worse recession in a decade, it would be transformed into a “new country” by 2020 through innovation and investment in “human capital.” He said the investment climate would be significantly improved within a year through a reduction of red tape and a clean-up of the court system.

The problem is that we’ve heard this before. When Vladimir Putin moved into the Kremlin a decade ago he promised to ensure the rule of law and to tackle corruption. But under his watch there has been no progress toward an independent judiciary, and the corrupt bureaucracy has been allowed to expand.

It was under Mr. Putin that assets were taken from Yukos, Shell and BP. It was under Mr. Putin that a growing number of journalists such as Anna Politkovskaya were killed with impunity. It is little wonder, therefore, that investors are skeptical about new pledges to tackle rampant corruption or diversify the economy away from a raw-materials base.

EDITORIAL: USA Kicking some Major Russian Keister

EDITORIAL

USA Kicking some Major Russian Keister

Last year, in a major new sign of the apocalypse for Russia, its hated rival the USA produced over 40 billion more cubic meters of natural gas than Russia did, knocking Russia out of the top spot in the world for at least the next five years.

If Russians thought that rising world oil prices were good for Russia, they’d best think again.  Rising prices have made it dramatically more cost effective for Americans to exploit their vast holdings of oil shales, a byproduct of which is natural gas as well.

China sticks it to Russia and Gazprom

Pavel Baev, writing in the Moscow Times:

Most news reports and comments on Monday’s festive opening of the gas pipeline from Turkmenistan to China portrayed the event as a strategic setback for Russia. There has been no official reaction, but the Kremlin has demonstrated total indifference to the break on its monopoly on importing gas from Central Asia. (Actually, Iran had broken the mononpoly much earlier in 1997.)

The Malignancy that is Nord Stream

The real reason that Russia wants to build Nord Stream, which is more expensive than the existing gas pipeline network, is that it will enable Russia to interrupt gas supplies to EU member countries like Poland, the Baltic states and Ukraine, while keeping its German and other West European customers snug and warm.

Uffe Ellemann-Jensen, a former foreign minister of Denmark, writing in the Moscow Times:

As winter approaches, many people in Central and Eastern Europe remember the chill caused last winter by Russia’s deliberate cutoff of gas supplies. That shutdown was a harsh reminder that gas is now the Kremlin’s primary political instrument as it seeks to re-establish its privileged sphere of interest in what it thinks of as Russia’s “near-abroad.” If Russia is allowed to continue imposing Moscow’s rules on Europe’s energy supplies, the result will be costly — not only for Europe, but for Russia as well.

So it is past time that the European Union stop treating energy as a bilateral issue, with some of the larger member states trying to protect their own narrow interests at the expense of the common European good. The EU urgently needs to build a common energy policy and a single market for natural gas. Until both are established, there is a grave risk that Russia will use new blockades to continue the kind of divide-and-rule policy that the world has witnessed since Vladimir Putin came to power.

EDITORIAL: Russia on the Verge of a New Energy War

EDITORIAL

Russia on the Verge of a New Energy War

Once again, Vladimir Putin’s Russia has proved itself wholly unable to carry on productive, friendly relations with its nearest neighbors.

Last week, in response to libelous, provocative unilateral Russian threats to shut down gas supplies in the event of payment default or “theft” of gas,  Ukraine announced that “it would double the fees that Russia must pay to transport natural gas through Ukrainian territory to the rest of Europe.”  Russia called the announcement “political blackmail,” yet Ukraine has not been late on any payments to Russia this year and there have been no allegations of siphoning.

Russia’s crude threats are the same ones the world heard last year, and Ukraine’s response was predictable as well.  The reasons for Russia’s aggression against Ukraine are perfectly clear.

EDITORIAL: The Russian Economy, Enslaved

EDITORIAL

The Russian Economy, Enslaved

“If the oil price is around $68-70, then the increase (in GDP) could surpass 3 percent, it could be 3.2-3.5 percent.”

–Russian Deputy Economy Minister Andrei Klepach, to Reuters on Friday, November 13th

Klepach was only saying out loud what everybody else (except the people of Russia) already clearly understands:  Russia has no real economy.  Even before the August 2008 financial crisis laid Russia low, the Putin regime had done nothing to diversify and broaden Russia’s economy, leaving it totally dependent on world crude oil prices for subsistence.  And even now, growth of just 3% on Russia’s pathetically small economic base is simply not sufficient to create any real improvement in living standards.  Since the U.S. economy is ten times larger than Russia’s while the U.S. population is only twice as big, each point of economic growth has five times more value in the U.S. than it does in Russia.

And let’s be clear:  This isn’t just a matter of incompetence or inattention.  This horrific enslavement of the Russian economy is official Kremlin policy.

Putin’s Croatia Gambit

The always indispensable Vladimir Socor reports, writing on the Jamestown Foundations’ Eurasia Daily Monitor:

With Prime Minister Vladimir Putin’s direct backing, Gazprom and other Russian energy companies have embarked upon an effort to co-opt Croatia into their projects, including a fanciful South Stream gas transport project. Putin has personally offered a package of energy projects to Croatia’s Prime Minister Jadranka Kosor and President Stipe Mesic during informal meetings abroad on September 1 and September 25, respectively. Russian officials have followed up intensively at many levels since then (Vjesnik [Zagreb], September 19, 21). Moscow’s goal is to outflank Central Europe through Croatia, so as to block access routes for non-Russian energy supplies from Croatia’s Adriatic coast into Central Europe.

EDITORIAL: The End of Russian Energy Terrorism

EDITORIAL

The End of Russian Energy Terrorism

For too long now, the Putin regime has been terrorizing Eastern Europe, Central Asia and the West with energy warfare, little different from what Al Qaeda does with bombs.  At last, though, the tide seems to be turning on this pathetic last-ditch effort of the Russian Kremlin to once again dominate the globe.

Putin Shows Exxon how “Business” is Done in Russia

Streetwise Professor reports:

A few days back I wrote about ExxonMobil was facing the prospect of losing its right to export gas from its Sakhalin I project to China, and sell it instead in the Russian domestic market at below market prices.  Today Bloomberg carries another article that dovetails perfectly with that story:

Another Original LR Translation: Russia’s Gas Boomerang

Russia’s Gas Weapon is a Boomerang

Yuliya Latynina

Novaya Gazeta

20 July 2009

People have begun to take Russia seriously. In 2005, immediately after signing the agreement on building the North Stream pipeline, we announced that we now possessed an energy weapon. “Not to worry, it’s just words,” Europe responded. But the Kremlin has since then actually used the weapon.

And Europe has at long last started to take Russia at its word. Europe has realised that for Russia gas is not a commodity but a weapon. Yet all it takes to make it ineffective is to refrain from buying the stuff. Last Winter, Europe cuts its imports of Russian gas very significantly and just last week signed the agreement for the building of the Nabucco pipeline. So yes, the Kremlin is quite right: gas is a weapon. And I know the name and class of weapon it is – a boomerang.

EDITORIAL: Now, its Russia’s Turn for the Chills

EDITORIAL

Now, its Russia’s Turn for the Chills

Last winter, Russia sent chills down the spines of Europe’s huddled masses by turning off the spigots for the region’s heating gas, using a conflict with Ukraine as pretext.  Though Russia may have felt powerful in the short term, in the long term this may have been the single most costly of Vladimir Putin’s innumerable policy errors.

That’s because the result was the announcement last week of a deal between a group of major European nations, signed in Turkey, to build a brand new gas pipleline called Nabucco (after an opera by Verdi) which will circumvent Russia and allow Europe to draw on the stocks of Central Asia. In a final cruel cut, the Nabucco line will begin pumping gas in 2014, the same year Russia expects to host the winter Olympic games in Sochi.

And that wasn’t the end of Russia’s nightmare.

Gazprom and the Stasi

Roman Kupchinsky, writing for the Jamestown Foundation’s Eurasia Daily Monitor:

Gazprom’s extensive network of loyalists, often act as “men of sacrifice,” devoted to cleansing the image of the Russian state owned gas monopoly. Working out of a modern office building in Berlin owned by Gazprom Germania, a German registered company fully owned by Gazprom Export which, in turn is run by Gazprom, they have built up a considerable empire for the Kremlin. In turn they are being whitewashed by other loyalists in the offices of Brussels-based PR firm GPlus Europe.

Gazprom on its Knees

“In their excellent book, Putin and Gazprom, former Deputy Prime Minister Boris Nemtsov and former Deputy Energy Minister Vladimir Milov clarify the real purpose of Gazprom: to transfer assets out of the company to government officials.”

Anders Aslund, praising Nemtsov’s attack on Gazprom (which we translated) and writing in the Moscow Times:

Gazprom has gone from being a great commercial hope to an ailing giant. Gazprom’s owners need to face up to the crisis and institute reforms.

A year ago, Gazprom was the third-most valuable company in the world with a market capitalization of over $350 billion. It has shrunk by two-thirds to about $120 billion, declining to the world’s 40th-largest company, even though it still accounts for about 20 percent of Russia’s market capitalization and roughly 10 percent of its gross domestic product.

Putin is Destroying Gazprom

The New York Times reports:

As energy markets shrink, the same tactics that the Kremlin used to build Gazprom, the giant energy company, into a fearsome economic and political power that could restore Russian influence in the world are now backfiring, slashing both its profits and its influence.

Russia’s Oil is Drying Up

Last week we reported on how Gazprom’s natural gas production has fallen by a shocking amount, and now the Wall Street Journal picks up on Russia’s equally horrific problem with plummeting oil production:

Is Russian oil production back?

After months of struggling to lift production volumes, Russia says its crude production rose in April by almost 1%. If sustained, that could bode well for global oil supplies in the event demand ever recovers. But take the latest data with a grain of salt. Russia’s Energy Ministry said Monday the country pumped 9.85 million barrels a day on average in April, up slightly from 9.79 million barrels a day in March. (The world’s next biggest producer, Saudi Arabia, currently pumps about 7.9 million barrels a day.)

But analysts at Sanford Bernstein rubbished the data, saying: “Despite perceived strength in March and April Russian oil production data, we do not believe the data supports a theory of returning output growth in the country.” Year-to-date production is still below last year’s, the analysts note.

We must Defend Georgia!

Defense policy analyst Zbigniew Mazurak, writing on the American Thinker (and quoting Kim Zigfeld!):

Unless European states and America suddenly adopt a hawkish foreign policy and strengthen their militaries, Europe will become a mere province of the Russian empire.

And, suprisingly, the fate of Europe will be decided not in Paris, Berlin, London, or Brussels, but in Georgia, a tiny, seemingly irrelevant country. The Caucasian republic hosts several strategic oil and gas pipelines. These pipes are the only fossil fuel corridors leading from Asia to Europe that are not controlled by the Russian Federation. Whoever controls Europe’s fossil fuel supply rules the European continent.

If the Russians seize those pipelines, their country will be a monopolist in Europe. The Old Continent will then have no choice other than to rely on Russia for the fossil fuel supply. This will mean that Russia will have a de facto veto right over the decisions of European governments. (Russia already has this power with regard to French and German governments; Germany obtains 40% of the natural gas it uses from Russia.)

EDITORIAL: USA Dominates Russia

EDITORIAL

USA Dominates Russia

One of the least-noticed facts about Russia by those who call themselves her “defenders” is that each year the USA and Russia produce virtually the same amount of crude oil.  Russia generates an income stream in foreign currency from its production which America lacks only because the American economy, immeasurably more potent and powerful than Russia’s, uses all of the country’s supplies for manufacturing and more, making huge purchases on the international markerts, while Russia is able to use only a tiny fraction of the oil it produces in its anemic, pathetic neo-Soviet industrial base.

And that’s only the tip of the iceberg.  Russia also manages the economic energy it does manage to generate far, far worse than America does, leading to anemic performance that bespeaks the total lack of credentials wielded by the clan of KGB spies that govern Russia.

No clearer illustration of this, for Russia, bitterly harsh reality could be offered than to compare America’s Exxon-Mobile with Russia’s Gazprom.   Exxon posted a record profit of $45 billion in 2008. Its fourth-quarter results were down because of falling prices for crude oil, but just 33%, and it rose to the top of Fortune 500 for the year.  And Gazprom?  Russia’s entry in the competition, a monopoly run by the Russian government itself, saw its profts fall by a whopping, truly breathtaking 84% in the fourth quarter of last year.  Its total profits for the year were less than $30 billion,  one third less that of Exxon Mobile, a single private American firm, and well below the market’s expectations.

This pure domination continues in the wider economic picture.

EDITORIAL: Russia’s Breathtaking Gas Hypocrisy

EDITORIAL

Russia’s Breathtaking Gas Hypocrisy

One of those truly amazing moments in the annals of Russian hypocrisy occurred last week, a demonstration of such flagrant two-faced dishonesty as only the Russians can produce.

No sooner had “prime minister” Vladimir Putin expressed outrage over Ukraine daring to import less gas from Russia than expected than Putin himself was infuriating Turkmenistan by refusing their gas shipments to Russia.  According to the Turkemen, in their case Russia’s action resulted in a massive explosion at a terminal that was not prepared to have gas flows back up so unexpectedly, Russia having given no warning of its actions.  Russia threatened to fine Ukraine for not buying enough; it didn’t offer to pay a fine to Turkmenistan, of course.